Federal funding is one option for U.S. cities seeking to become smarter. The White House announced in late September that it would make an investment of $80 million for smart cities, expanding upon an initiative that began in September 2015. This includes $15 million to improve energy efficiency through data gathering, $15 million for research in improving transportation, and $10 million for natural disaster response programs.

In addition, the National Science Foundation is allocating $60 million in new funding for its Smart Cities Initiative. This funding will cover a research task force seeking solutions for cities, expanding internet architecture within cities, transportation efficiency, health research, and networked computer systems.

That's not all the federal government has given toward smart city technology. In June 2016, the U.S. Department of Transportation selected Columbus, Ohio to receive $40 million to prototype the future of urban transportation, out of 78 cities that accepted its Smart City Challenge.

There are multiple sources of capital/financing for smart city technology and different options for what that capital will look like, according to Minh Le, Managing Partner, 22 Capital Partners. Avaya partnered with 22 Capital Partners to prototype the smart city platform in the Gramercy District in the Washington, D.C. area.

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Bob Billbruck, CEO of B2 Group, said that he considers the key resources to be private enterprise, government and municipality funding, private placement bonds, the private equity market, corporate bonds, money market and banks.

The Smart Cities Council also helps cities acquire funding. The council is a for-profit association that works with partner companies to advance the smart city business sector. The council has issued a challenge in partnership with the White House to give away five Smart Cities Council Challenge Grants to help five U.S. cities apply smart technologies to urban livability, workability, and sustainability. Each winning city will receive a range of benefits, including a one-day Readiness Program workshop, as well as AT&T IoT starter kits, a smart city consultation, a free hosted smart city communication network for one year, and free access to the Telit IoT platform. The council will begin accepting applications on October 31, 2016, and the deadline to apply for the five grants is December 31, 2016.

Jason Nelson, executive director for partner engagement at the Smart Cities Council, said financing smart infrastructure is expensive and requires creative approaches that include short-term and long-term goals.

The council states in its Smart Cities Financing Guide, "The challenge with many of the newer smart city technologies is that would-be investors see them as high risk because the ROI is uncertain. On the other hand, many projects that have uncertain ROIs can be financed through traditional sources, albeit with lower levels of debt financing. However, projects that embody some element of technology risk--first-of-a-kind projects, for instance, cannot attract debt financing and generally require guarantees or other forms of credit support (or all equity financing)."